Financial statement ratio analysis. Financial ratio analysis compares relationships between financial statement accounts to identify the strengths and weaknesses of a company. Financial statement analysis is the process of analyzing a companys financial statements for decision making purposes and to understand the overall health of an organization. This expert written guide goes beyond the usual gibberish and explore practical financial statement analysis as used by investment bankers and equity research analysts.
Financial ratios are usually split into seven main categories. Here i have taken colgate case study and calculated ratios in excel from scratch. Analyzing your financial ratios.
Financial ratio analysis a reading prepared by pamela peterson drake o u t l i n e 1. These are prepared at regular intervals and typically contain at least a balance sheet and an income statement. Profitability ratios and activity ratios.
Financial ratio analysis can provide meaningful information on company performance to a firms management as well as outside investorscalculating the ratios is relatively easy. Any successful business owner is constantly evaluating the performance of his or her company comparing it with the companys historical figures with its industry competitors and even with successful businesses from other industries. Financial statements are prepared by companies to demonstrate its financial activity to stakeholders.
Since 1919 rma has been the leader in providing the industry with reliable and accurate financial benchmarking figures including standards for balance sheet and income statement line items and 19 classic industry average ratios such as the current ratio quick ratio and turnover ratios. The financial statements three nancial statements are critical to nancial statement analysis. Understanding and interpreting what they say about a companys financial status takes a bit more work.